Hertler Market Signal Update #720 1/10/2016 1
Hertler Market Signal Update
#720 January 10, 2016
The SMI is consistent with a major market top already in place.
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Smart Money Index (SMI)
___SMI 50-DMA
___SMI 200- DMA
S&P 500 vs Smart Money Index
The Smart Money Index surged through the top of the current sideways pattern. In case
anyone doubted the inverse relationship between the SMI and the S&P 500, this should clinch it.
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S&P 500
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Smart Money Index (SMI)
___SMI 50-DMA
___SMI 200-DMA
S&P 500 vs Smart Money Index
From a longer term perspective it is apparent that important tops in the SMI occur at
major S&P 500 lows and vice versa. Since a major low is now in place in the SMI, one can
conclude that a major stock market top has formed and a major bear market is in progress.
Hertler Market Signal Update #720 1/10/2016 2
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S&P 500
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LMC (Cumulative Late Market Component of SMI)
S&P 500 vs LMC
____200-DMA
____50-DMA
The late market component (LMC) of the Smart Money Index rose slightly above both
moving averages. Since August there has been a positive correlation of the LMC and the S&P
500. Thus, the rise in the LMC would be slightly bullish.
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LMC (Cumulative Late Market Component of SMI)
S&P 500 vs LMC
____200-DMA
____50-DMA
The long-term plot of LMC vs S&P 500 does not show any consistent correlation unlike
the SMI (vide supra) or the EMC (vide infra). The LMC peak of February 2004 occurred 44
months before the S&P 500 peak of October 2007 for instance. The most recent top in the LMC
occurred 34 months ahead of the May 2015 peak in the S&P 500 index not very useful.
Hertler Market Signal Update #720 1/10/2016 3
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S&P 500
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EMC (Cumulative Early Market Component of SMI)
S&P 500 vs EMC
___EMC 200-DMA
____EMC 50-DMA
The EMC (early market component of the SMI) plunged to a new low. Although in theory
the EMC is supposed to represent the dumb money the emotional traders it is apparent that
the EMC correlates very well with the S&P 500. It has been in a downtrend all year and very
bearish. The strong move of the EMC overpowers the LMC and is thus responsible for the
strength in the SMI.
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EMC (Cumulative Early Market Component of SMI)
S&P 500 vs EMC
___EMC 200-DMA
____EMC 50-DMA
The long-term plot of EMC vs S&P 500 is consistent with the formation of a major market
top.
Hertler Market Signal Update #720 1/10/2016 4
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S&P 100
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___BCI 50-Wk MA
Barron's Conf idence Ind ex is a high-grade
bond-index divided by an intermediat e-grade
bond-index. A decline in the lat ter vs. former
is sa id to generally indicate rising confidence,
pointing t o higher stocks an d vice versa .
Barron's Confidence Index
S&P 100 vs Barron's Confidence Index
Barron’s Confidence Index rose slightly. Peaks and troughs in the Confidence Index
show some correlation to tops and bottoms in the S&P 100. The Confidence Index is bearish.
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Russell 2000 Small Cap
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Ratio of Russell 2000 to DJIA
Small Caps vs Ratio of Russell 2000 Small Caps to DJIA
The small cap/DJIA ratio made a new low. The long standing relative weakness in the
small caps is long term bearish. The ratio has been in a downtrend dating back to March 2014.
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NASDAQ COMP
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Ratio of NASDAQ Composite to S&P 500
NASDAQ Comp vs Ratio of NASDAQ Comp. to S&P 500
The ratio of the NASDAQ Composite to the S&P 500 fell sharply, which is bearish.
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S&P 500
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AAII Bulls - Bears as Fraction of Bulls + Bears
(12-Week Moving Average)
S&P 500 vs AAII Member 12-Week Bullish Sentiment Oscillator
The 12-week AAII-member Bullish Oscillator is above zero and falling. It is slightly
bearish.
Hertler Market Signal Update #720 1/10/2016 6
PANIC
EUPHORIA
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S&P 500
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S&P 500 vs Citigroup Panic/Euphoria Model
Citigroup Panic/Euphoria Model
The Citigroup Panic/Euphoria Model (from Barron’s) plunged to -0.44 last week,
approaching the extreme low at the end of the 2007-2009 bear market and the October 2015 low.
It is deep in the panic zone and very bullish.
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NYSE Composite
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Fear Index: Product of VIXO and Total Put/Call
Ratio (50-Day Moving Average)
NYSE Composite vs Fear Index
___Fe ar 5-DMA
The Fear Index 5-day moving average surged close to the August/October peaks as the
NYSE Composite Index hit a new low. The 50-day moving average has turned up. This could
spark a counter-trend rally.
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DJIA
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IDV (Interday Volatility of DJIA, %) 10-Day Moving Avg.
DJIA vs Interday Volatility of DJIA
The Interday Volatility Index spiked over 2, dropped to a complacent level, shot
up above 1. Last week it turned down below 1. It is short-term bullish.
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DJIA
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idv(Intraday Volatility of DJIA, %) 10-Day Moving Avg.
DJIA vs Intraday Volatility of DJIA
The Intraday Volatility Index climbed back near its recent high where it is
bullish.
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The Smart Money Index is bearish and consistent with a major market top in place.
Barron’s Confidence Index is bearish.
The Citigroup Model is deep in panic mode very bullish.
The relative weakness of the small caps is bearish.
The relative weakness of the NASDAQ is bearish.
Hertler Market Signal Update #720 1/10/2016 8
The Fear Index is has surged, which is bullish.
The Volatility Indexes are high and bullish.
The AAII member bullish oscillator is slightly bearish.
The sentiment indicators are consistent a short-term rally. A rally from this point could
carry to Fibonacci S&P 500 recovery levels of around 2041 or 2072.